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The Foreclosure Boom

The Foreclosure Boom. Home Buying Secrets. The Foreclosure Boom Who we are: A North American Group Of Real Estate Professionals Who Specialize in Foreclosed Properties. How Did It Happen?. The dot.com Bubble Burst in 2000-2001.

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The Foreclosure Boom

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  1. The Foreclosure Boom Home Buying Secrets

  2. The Foreclosure BoomWho we are:A North American Group Of Real Estate Professionals Who Specialize in Foreclosed Properties

  3. How Did It Happen? • The dot.com Bubble Burst in 2000-2001. • People bailed out of the stock market and into real estate after 9/11 Terrorist Attacks. • The Federal Reserve attempted to avoid a recession by dropping interest rates to 40 year lows fueling the biggest real estate boom in U.S. history.

  4. Risky Loans • Banks and Lenders created risky loan products and loaned money to virtually anyone who was “breathing.” • Lots of Easy Credit • Bad Lending Practices • Rapidly Rising Real Estate Prices

  5. Wall Street Greed • Wall Street “packaged” risky mortgages and loans and sold them to other financial institutions around the world. • 2007 – Reality sets in and real estate markets across the U.S. adjust sharply downward.

  6. Enter the Foreclosure Crisis

  7. The Numbers are Staggering • The Housing Market was rocked by nearly 2.5 Million foreclosure filings last year. • 2009 is projected to rise to 3 Million according to RealtyTrac • Almost 7% are falling behind on their mortgages. • 1 in 10 are delinquent or in foreclosure. • + 72% from last year. • Many project that the crisis will rise and peak in 2011

  8. Disturbing Economic News is Everywhere!!! • Banks, Stocks, Money-Market Funds, Bonds and Mutual Funds are losing • Over 220 Mortgage Lenders are Out of Business • Unemployment, Layoffs & Cutbacks Fuel Daily News Headlines

  9. “The Foreclosure Explosion”Crisis or Opportunity?

  10. Meltdown Realities • The U.S. Foreclosure market is at an All-Time High. • You have a once-in-a-lifetime opportunity to buy property at prices that were unthinkable only one year ago.

  11. It’s a Huge Opportunity! (Investors) • The Best Investment Opportunity in over 30 Years! • Buy Positive Cash Flow Properties for a Fraction of their Original Value. • Increased Demand for Rentals • Fortunes will be made by those who “Take Action.”

  12. It’s a Huge Opportunity!- (Owner Occupied) • Purchase homes at a fraction of the cost – Means instant equity PLUS a bigger boost when the market rebounds. • Afford a larger and/or nicer home compared to 2 years ago during market bubble • Pay less on mortgage than rent

  13. This is the time to Take Massive Action!

  14. What is a Foreclosed Property? • A foreclosure occurs when an owner can’t make principal and/or interest payments on the mortgage or loan secured by the property. • The bank takes the property back and hires a real estate listing agent to market and sell the property.

  15. Foreclosed Homes • For today’s class, we are focusing on the real estate transaction after the bank takes back ownership. • REO = Real Estate Owned • REO Properties will be listed by a Real Estate Agent and Sold

  16. Other?? • Let’s quickly review some other types of real estate that are often confused with foreclosed homes • Pre-Foreclosure/Short Sale • Courthouse Auction

  17. Pre-Foreclosure - Short Sale • Short Sales- when a lender, through negotiations, agrees to accept less than what is owed on the home to satisfy the loan. • Complicated and time consuming process. We could spend 8 hours just on short sales

  18. Perception of Short Sales • “Short sale” has become a buzz word in a market desperate to hear something less discouraging than “foreclosure.” • Buyers see the short sale list price and mistakenly believe they can obtain the home for that price or less. • Buyer thinks bank should be thrilled to have the property sold and out of trouble. • Buyers think Short Sale is a great deal

  19. Reality of Short Sales • Only a SMALL Percentage of short sales close • List price NOT realistic-Price set to get buyer’s attention NOT at price the bank will accept. Agent doesn’t know what bank will accept. • The bank doesn’t have to respond on your timeline. Typically takes 60-90 days to hear from bank. • It doesn’t make sense that a bank should be thrilled and answer quickly and sell home cheaply! • Bank is already facing a loss so they aren’t eager to let someone steal it when the next person may come in and offer more

  20. 2. Sheriff Auction- Courthouse Sale • After 90 days of non-payment, a Notice of Sale (NOS) is published, setting an auction date within 45 days and detailing the amount owed. • Not all homes that fall into foreclosure go to public sale because owners have the right to make up back payments up to the point of auction

  21. Foreclosure Auction Pitfalls • In today’s market, the price you pay at an auction is usually higher than market value, based on mortgage amount due. • Must pay with cash or cashier’s check. • As is – no warranties or inspections • Must be an expert title researcher. • Bidding war could leave you out or force you to pay more than you should. • No Clear Title & No Title Insurance. • You may need to evict residents. • Property could be trashed by angry owners • Lost of cash, resources and risks.

  22. Foreclosed Home (REOs) • Let’s take a closer look at these properties…

  23. Perception of buying Foreclosed Homes • The home is a good deal since it is a foreclosed home • Buyer will save money by purchasing a foreclosed home vs. buying on the open market • The home needs a lot of work • Anyone can make money (equity) buying foreclosed homes • Any Real Estate Agent can help buy and process foreclosed home transactions

  24. 1. Bank Foreclosed Homes Are Good Deals • Definition of a foreclosed home - Bank takes ownership due to non-payment. Doesn’t mean the home is a good deal. • The bank’s goal: Get the highest sales price possible in order to cover mortgage • The list price could be more or less than market value • You need knowledge in the particular market and must perform market research to determine what the property is worth to you

  25. 2. Buyer Will Save Money By Purchasing Foreclosed Home • There are many additional risks and potential expenses purchasing a foreclosed home vs. an occupied, MLS-listed home • Financing a foreclosed home can be costly and time-consuming and many times can’t be completed • Potential repair costs are unknown many times and will usually require cash out of pocket to fix

  26. 3. Foreclosed Homes Need A Lot Of Work In the current market, approximately 5-10% of homes are in move-in condition (and increasing) • 10-20% of homes need little work. Less than $5k • 70-85% need work, and repair costs vary depending on the home

  27. 4. Anybody Can Make Money (Equity) Buying Foreclosed Homes • If you listen to all the radio ads, Internet ads and everywhere else you turn, you believe foreclosures are easy money – homes are just being GIVEN away. • Well, if it were that easy, why isn’t everyone doing it? • The truth is that for the inexperienced, buying a foreclosure can be a difficult process if they try to go it alone.

  28. 5. Any Real Estate Agent Can Buy & Process Foreclosed Transactions • Well, if it were that easy, wouldn’t EVERY real estate agent be listing and selling foreclosures? • Most agents do NOT want to deal with foreclosures, which means few have experience • You’re no better off than going it alone.

  29. The Property • What Makes A Good Foreclosed Property? • How Do We Find the Homes?

  30. The Property • Locate Homes in nice neighborhoods • Preview homes to make sure the home fits client’s wants and needs. • We perform extensive market research to determine value of home • Looking at the big-ticket items in the home

  31. The Property • 1 out of 15 homes is a best buy • If we find 3 Best Buy homes, we have previewed 45 homes • Time-consuming process • These best buy homes reflect the best values in the current market with low fix-up costs

  32. How Do We Get The Best Deals?

  33. We Closely Examine the Mind of the Bank • What is the bank thinking? • What can we do to capitalize?

  34. How To Get The Best Deal? • Most banks will not even consider an offer in first seven days on market • You must know WHEN to negotiate. There is a point when banks will start negotiating. • There are critical points in the foreclosure timeline when banks will make price adjustments. Your agent MUST anticipate these points.

  35. Negotiating Strategies… • Good Negotiating Strategies can save you thousands of dollars and hours of time

  36. How and When You Submit Your Offer Is Critical • If offer will be accepted • Price of home • Terms of deal

  37. #1 item bank is considering when reviewing your offer ABILTIY TO CLOSE

  38. Submitting The Offer • 32.4% of Foreclosed home transactions fall apart before they close • Lenders are: • Getting burned on non-closing agreements • Getting more discriminating when accepting purchase agreements

  39. Submitting The Offer • CASH IS KING! • Cash Deals are better than finance deals • Line of credit is NOT the same as cash • Financing deals are possible but must be structured properly

  40. What And How to Offer • Low-ball offers will not get reviewed or considered by bank. Based on % of list price • Higher $ earnest money deposits • Bank will ALWAYS counteroffer

  41. What And How To Offer • If financing is required: • Strong Pre-approval letter • National Lender • Local Lenders??? • Longer closing • Lender needs to have experience financing bank foreclosures • $100 per day if closing date is missed

  42. Property Inspections • Buyer can walk through home and observe the home before making offer • Buyer can perform home inspection • Timeline of inspection is critical -verbal

  43. REO Pitfalls For The Inexperienced Buyer • Banks can be difficult and unresponsive • Contracts may be overwhelming • Bank selects Title Co. even though you pay • Utilities may not be on for inspections • Cash takes precedent; no contingent offers • Close on schedule or subject to $100/day fine • Default on closing and lose deposit • May be countered with “Highest & Best Offer”

  44. Our Real Estate Network And Foreclosed Properties • We are a North American group of Real Estate Professionals who specialize in foreclosed properties. • We do extensive market research to find the best priced homes for our clients. • Our clients (investors and owner occupied) have purchased many foreclosed homes over the years, before the foreclosure market was booming. • Let’s look at some examples

  45. Foreclosed Sale Example Clients: James Bailey and Leah Sator Market Value: $220,000 Purchase Price: $ 49,000 Savings: $171,000 Percent (savings): -78% 1202 Chapel Oaks Drive Capitol Heights, MD

  46. Foreclosed Sale Example Client: Mike Hardy Market Value: $104,000 Purchase Price: $ 48,000 Savings: $ 56,000 Percent (savings): -54% Devoe Avenue Euclid, OH 44123

  47. Foreclosed Sale Example Clients: Anonymous Market Value: $135,000 Purchase Price: $ 73,900 Savings: $ 61,100 Percent (savings): -45% 4740 Grasset Avenue Charlotte, NC

  48. Foreclosed Sale Example Clients: Jackie and Tim Benson Market Value: $180,000 Purchase Price: $135,000 Savings: $ 45,000 Percent (savings): -25% 21625 Palmer Court Robertsdale, AL

  49. Foreclosed Sale Example Clients: Jim and Patricia Fogarty Market Value: $670,000 Purchase Price: $485,000 Savings: $185,000 Percent (savings): -28% 653 and 655 Lisbon Street Daly City, CA

  50. Foreclosed Sale Example Clients: Vale and Deidra Bacon Market Value: $295,460 Purchase Price: $225,000 Savings: $ 70,460 Percent (savings): -24% 3063 Sweetgum Way Saint George, UT 84790

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